Ross v. Continental Cas. Co.

• Decision Date: 02 December 2009
• Docket Number: Civil Action No. 07-1450 (RWR)(AK).
• Citation: 420 B.R. 43
• Parties: Bryan S. ROSS, Plaintiff, v. CONTINENTAL CASUALTY CO., Defendant.
• Court: U.S. District Court — District of Columbia

Page 43

420 B.R. 43

Bryan S. ROSS, Plaintiff, v. CONTINENTAL CASUALTY CO., Defendant.

Civil Action No. 07-1450 (RWR)(AK).

United States District Court, District of Columbia.

December 2, 2009.

Michael E. Tucci, Jaime Sue Dibble, Stinson Morrison Hecker, LLP, Washington, DC, for Plaintiff.

Richard Albert Simpson, Kelly Vest Overman, Wiley Rein LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

RICHARD W. ROBERTS, District Judge.

Plaintiff, Chapter 7 bankruptcy trustee Bryan Ross, brought this action against defendant Continental Casualty Company ("Continental") arguing that Continental breached a contract by failing to defend and indemnify the Law Offices of Stanley H. Goldschmidt, P.C. ("Goldschmidt, P.C.") for liability arising from a malpractice lawsuit. Continental filed a counterclaim seeking a declaratory judgment that the policy did not cover Goldschmidt, P.C.'s claim. Continental has moved for judgment on the pleadings, or in the alternative for summary judgment, and Magistrate Judge Alan Kay recommends that Continental's motion for summary judgment be granted. Because the undisputed facts reflect that the professional liability policy did not require Continental to defend and indemnify Goldschmidt, P.C., Magistrate Judge Kay's recommendation will be adopted and Continental's motion for summary judgment will be granted.

BACKGROUND

Stanley Goldschmidt ("Goldschmidt") represented Restaurant Equipment and Supply Depot, Inc. ("RESD") in a lawsuit filed against it in Superior Court for the District of Columbia. Rest. Equip. & Supply Depot, Inc. v. Gutierrez, 852 A.2d 951 (D.C.2004). Goldschmidt failed to file a timely answer on behalf of RESD and default was entered. Goldschmidt moved unsuccessfully to vacate the entry of default, and the Superior Court entered final default judgment against RESD for over $800,000 on May 1, 2001 after a trial on damages. Id. at 954. (See Def.'s Stmt. of Material Facts ("Def.'s Stmt.") ¶ 8.) Goldschmidt filed an unsuccessful appeal for RESD with the District of Columbia Court of Appeals ("Court of Appeals"). Gutierrez, 852 A.2d at 957.

While RESD's appeal was pending, Continental issued a professional responsibility liability policy to Goldschmidt, P.C.¹ that provided coverage for claims made and reported from May 1, 2003 to May 1, 2004. (Def.'s Stmt. ¶¶ 18, 20.) This policy was renewed until it was cancelled as of July 1, 2005. (Id. ¶ 18.) Upon cancellation, Goldschmidt, P.C. purchased an unlimited extended reporting period (id. ¶ 19), which created a "period of time after the end of the policy period for reporting claims by reason of an act or omission that occurred prior to the end of the policy period and is otherwise covered by [the] policy."² (Def.'s Mem. of P. & A. in Supp. of Mot. for J. on the Pldgs., or in the Alt., Mot. for Summ. J. ("Def.'s Mem."), Decl. of Kelly V. Overman, Ex. A, Lawyers Professional Liability Policy ("Liability Policy") § VI.)

In September 2005, RESD filed for bankruptcy and Ross was appointed trustee of the bankruptcy estate. (Def.'s Stmt. ¶ 13.) Goldschmidt, P.C. notified Continental in January 2006, during the policy's extended reporting period, that Ross contemplated asserting a malpractice claim against Goldschmidt, P.C.³ (Def.'s Stmt. ¶ 19; Pl.'s Stmt. of Undisputed Material Facts ("Pl.'s Stmt.") ¶¶ 20, 21.) Under the policy, Continental agreed to

pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages and claim expenses because of a claim that is both first made against the Insured and reported in writing to the Company during the policy period by reason of an act or omission in the performance of legal services by the Insured or by any person for whom the Insured is legally liable, provided that . . . prior to . . . the inception date of the first policy issued by the Company . . ., if continuously renewed . . . [,] no Insured had a basis to believe that any such act or omission, or related act or omission, might reasonably be expected to be the basis of a claim[.]

(Liability Policy § I.A (emphasis added).)

Ross later filed a malpractice lawsuit against Goldschmidt, P.C. (Def.'s Stmt. ¶ 14.) Ross and Goldschmidt, P.C. reached a settlement in which judgment was entered against Goldschmidt, P.C., and Goldschmidt, P.C. assigned its rights under the liability policy to Ross. (Id. ¶¶ 15-16; Pl.'s Stmt. ¶ 26.) Goldschmidt, P.C. notified Continental of the adverse judgment. (Def.'s Opp'n to Pl.'s Stmt. ¶ 22.) Continental denied coverage of Goldschmidt, P.C.'s policy claim. (Def.'s Stmt. ¶ 24; Pl.'s Stmt. ¶¶ 23, 25.)

Ross alleges that Continental breached the contract by failing to defend and indemnify Goldschmidt, P.C. for liability arising from the RESD malpractice lawsuit. (Compl. ¶ 44.) Continental has filed a counterclaim seeking a declaratory judgment that the policy barred coverage of the claim against Goldschmidt, P.C., and has moved for summary judgment, arguing that Goldschmidt, P.C. had a basis to know before the policy was issued that its representation of RESD might trigger a malpractice lawsuit. (Def.'s Mem. at 7-14.) Ross opposes Continental's motion for summary judgment. He argues that D.C.Code § 31-4314 bars Continental from denying coverage unless Goldschmidt, P.C. subjectively intended in its policy application to deceive Continental and the deception was material, for neither of which there is any evidence. (Pl.'s Opp'n to Mot. for Summ. J. ("Pl.'s Opp'n") at 7-10.)

The magistrate judge recommends that Continental's motion for summary judgment be granted. The magistrate judge concluded that no material facts remained in dispute as to whether Goldschmidt, P.C. knew of prior events that could have triggered a claim, and that § 31-4314 did not govern this dispute. (Report & Recommendation ("R. & R.") at 10-12.) Ross filed an objection claiming that § I.A of the policy is ambiguous and should be interpreted in Ross' favor, that Continental had to show materiality of a false statement or intent to deceive in the application to deny coverage, and that an issue of fact exists as to whether Goldschmidt's actions might reasonably have been expected to be the basis of a claim. (Pl.'s Obj'n to Magistrate's R. & R. ("Pl.'s Obj'n") at 1-2, 5-6, 9.)

DISCUSSION

Under Local Civil Rule 72.3(c), "[a] district judge shall make a de novo determination of those portions of a magistrate judge's findings and recommendations to which objection is made." Local Civil Rule 72.3(c); Ames v. Yellow Cab of D.C., Inc., Civil Action No. 00-3116(RWR), 2006 WL 2711546, at *4 (D.D.C. Sept.21, 2006).

On a motion for summary judgment, "[t]he inquiry performed is the threshold inquiry of determining whether there is the need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment may be granted only where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Moore v. Hartman, 571 F.3d 62, 66 (D.C.Cir.2009). A material fact is one that is capable of affecting the outcome of the litigation. Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505. A genuine issue is one where the "evidence is such that a reasonable jury could return a verdict for the nonmoving party[,]" as opposed to evidence that "is so one-sided that one party must prevail as a matter of law." Id. at 248, 252, 106 S.Ct. 2505. A court considering a motion for summary judgment must draw all "justifiable inferences" from the evidence in favor of the nonmovant. Id. at 255, 106 S.Ct. 2505. The nonmoving party, however, must do more than simply "show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, the nonmovant must "come forward with specific facts showing that there is a genuine issue for trial." Id. at 587, 106 S.Ct. 1348 (internal quotation marks omitted).

I. D.C. CODE § 31-4314

Under D.C.Code § 31-4314, "[t]he falsity of a statement in the application for any policy of insurance shall not bar the right to recovery thereunder unless such false statement was made with intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the company."⁴ D.C.Code § 31-4314. D.C.Code § 31-4314 prevents an insurer from denying coverage or canceling a policy due to a false statement in the application unless the applicant intended to deceive the insurer or the false statement materially affected the insurer's decision of whether to insure the applicant. Westhoven v. New England Mut. Life Ins. Co., 384 A.2d 36, 38 (D.C.1978); see also Metro. Life Ins. Co. v. Adams, 37 A.2d 345, 348 (D.C.1944) (noting that the section involves an insurer's attempts to "avoid such a policy for material misrepresentation on account of the answers to the questions in the application"); Burlington Ins. Co. v. Okie Dokie, Inc., 398 F.Supp.2d 147, 157 (D.D.C. 2005) (applying § 31-4314 to an attempt to deny coverage and cancel a policy by an insurer that claimed the application contained a false statement that materially affected the insurer's decision to issue the policy). Ross objects to the magistrate judge's conclusion that Continental does not have to show intent to deceive or a material effect on the risk taken in order to deny coverage. (Pl.'s Obj'n at 2.)

Continental did not ground its denial of the insured's claim on any assertion that the insured made any false statement in its application. Continental denied the claim based...